Latvia is well known for being one of the fastest growing economies in the European Union (EU). It possesses a fantastic geographical location on the Baltic Sea shore and in the middle of the Baltic countries. This has placed Latvia squarely at the center of international commerce for centuries. For more than seven centuries, the country has been a major commercial hub between west and east, and was at the center of the Hanseatic League, the world’s first Free Trade Area.
Since the regaining of its independence in 1918, foreign trade in Latvia has consistently increased, particularly after Latvia’s became part of the EU, allowing it to become the 83rd largest exporter in the world in 2013, as the exports to EU countries make up to 72 % of the total volume of Latvian exports. This entire frame has helped Latvia to increase its exports rates more than two points per year during the past five years.
According to provisional data provided by the Central Statistical Bureau of Latvia, the country exports more than 306 products with known comparative advantage (meaning that it exceeds the export expectations based on the size of its export economy and from the size of a product’s global market).
Some of Latvia’s most common export goods
Forests are an outstanding feature of Latvia’s geography, covering 42% of its territory. Being a land rich in timber resources, Latvian foreign trade is dominated by wood and wood products. Nevertheless, Latvia excels in other products as well such as locomotives, telecommunication products, chocolates and tram cars. Its location makes Latvia the most preferred country to trade with and therefore EU biggest economies, such as Germany, have important trading relations with Latvia.
Some of the most significant commodities Latvia exports are both machinery and mechanical appliances, electrical equipment and cereals, these constituting 17 % of the total exported goods, followed by prepared foodstuffs, articles of base metals as well as mineral products. Some of the most recent exports are also led by refined petroleum which represent 11.8% of the total exports of Latvia.
Important trading relationships in 2015
In 2015 the most important exports partners in trade with EU countries were Lithuania (18.3 % of total exports), Estonia (11.8 %), Poland (9.7 %), the United Kingdom (5.3 %) and Germany (5.2 %). Some other important partners were Sweden and Denmark.
Latvian exporters would hardly feel the effects of the European debt crisis, because Latvia’s exports to the most affected Eurozone countries (Portugal, Ireland, Italy, Spain and Greece) comprise a small part (2%) of the total trade income.
Some other key partners for trading in 2015 were Russia and Afghanistan, comprising 9.7 % in the total exports of Latvia.
What has allowed Latvia to stay in the game?
Being an economy that was focused on demand and consumerism a few years ago, Latvia faced a considerable reduction of resources for production and therefore exports decreased significantly in 2008. A favorable cost dynamic, improved competitiveness and an increase in foreign demand, allows Latvian producers to keep balance and expand export market shares in the most significant trading partners’ markets, and also in new market niches.
Some of the strengths of the Latvian market include:
- English commonly used as business language.
- Business incentives and EU funding available.
- Strong and open economy.
- Skilled workforce.
- Cost effective.
- Strong transport links and logistics base due to its location.
Thinking about future ahead
- There will be a significant role for investments by companies in increasing production capacity, since currently many manufacturers of export goods have reached maximum production capacity.
- Export growth will always depend on events in Europe, which is an essential export market for Latvia and where there is great uncertainty about developments and solving the debt crisis.
- The Bank of Latvia argues that there will be an increase in competition and a greater expectations for the quality of Latvian export goods due to the weakening of demand in external markets. This means that all goods based on the intensive use of technology and with high value added in Latvia’s export structure must be gradually augmented.
- It is predicted that the rate of export growth will decrease, but since countries directly affected by the Eurozone debt crisis are not among Latvia’s largest trading partners, a strong decrease is not expected.
- Nowadays there are 20 external Latvian Representative Offices (located in Azerbaijan, Belarus, China, Denmark, Finland, France, Germany, Italy, Japan, Kazakhstan, Lithuania, the Netherlands, Norway, Poland, Russia, Singapore, Sweden, the UK, Ukraine and the United Arab Emirates) at 35 Latvian embassies, which are a significant instrument of support for exporters abroad. It is expected in the future that a Representative Office will start working in countries as Brazil and India.